8 Rites of Passage as You Prepare for - and Enjoy - Retirement

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By Emily Brandon

Retirement is a transition into a new stage of life. Retirees get the freedom to choose how to spend their time, but they also walk away from the comfort of a steady paycheck and need to make important financial decisions. Here are some important retirement rites of passage.

1. Reaching Financial Freedom

You have achieved financial freedom when you no longer need to work to pay your bills for the rest of your life. "Once you reach that inflection point, you can leave this job or negotiate part-time work, and you know things are going to be OK," says Maura Griffin, CEO and principal for Blue Spark Capital Advisors in New York. Griffin recommends doing an analysis of your finances, using conservative investment returns and factoring in inflation and taxes, to reassure yourself that you have enough money to retire.

2. Telling Your Boss

There's a certain satisfaction that comes from being able to tell your boss that you're simply not going to come into work anymore. "Some people just want to get away from a job that is killing them, and they want to get out of the rat race," Griffin says. But other people find they miss some aspects of the job, especially the social life they had in the office. The transition is often easier if you have hobbies or travel plans to look forward to.

3. Shutting Down Your Work Computer

There will come a moment after your stuff is packed when you walk out of your office for the last time. You get to escape from boring meetings and tight deadlines, but you also won't get another invite to a business lunch or holiday party.

4. Responding to "What Do You Do?"

Most people answer this question with their profession, but retirees need to think of a new answer. You may want to talk about your volunteer position or an important hobby, or have a quip ready about how you finally get to do whatever you want every day.

5. Withdrawing From Your Retirement Accounts

After decades of saving for retirement, retirees finally get to spend some of that money. But you also need to worry about making your savings last for the rest of your life. Once you turn 59½, there's no longer a 10 percent early withdrawal penalty to take money out of your retirement accounts, but you will need to pay income tax on each withdrawal from traditional 401(k)s and individual retirement accounts. After you reach 70½, you will be required to take withdrawals from your retirement accounts each year. The penalty for missing a required minimum distribution is 50 percent of the amount that should have been withdrawn. "When you retire, you are going to be using up those savings, sometimes very rapidly," says Stan Hinden, a retiree and author of "How to Retire Happy: The 12 Most Important Decisions You Must Make Before You Retire." "My wife and I had not had the time to travel very much while we were working, and that was a lot of fun and we enjoyed it, but it made a big dent in our savings. Having fun costs money, and unless you have got a lot of money in retirement, you have to have some discipline."

6. Collecting Social Security Payments

Workers pay into Social Security throughout their entire career, and many retirees are eager to collect. However, the age you sign up for benefits drastically changes the monthly payment you receive. Although you can begin collecting benefits as early as age 62, monthly payments are reduced if you claim benefits before your full retirement age, which is 66 for most baby boomers and 67 for people born in 1960 or later. Monthly payments will increase for each additional year you delay claiming payments up until age 70. "The decision about when to take Social Security is a bet on longevity," Griffin says. "If you have longevity in your family, waiting until 70 gives you the most that you can have for your life, but if you have health issues, then maybe you want to go ahead and take it early."

7. Signing Up for Medicare

Beginning three months before you turn 65, you can sign up for Medicare. It's important to sign up for benefits in the seven-month window around your 65th birthday, because premiums are sometimes increased for beneficiaries who sign up later. Medicare is likely to have different coverage and cost-sharing requirements than your previous health insurance plan, so it's a good idea to examine how your benefits and medical bills will change. "The expenses for our medical bills after we retried were considerably higher than before we retired. Those benefits paid for things like dental work, but Medicare doesn't pay for those things," Hinden says. "And even if you have a Medicare supplement, which you certainly need, you are going to wind up somewhat surprised by the expenses for health care after you retire."

8. Realizing You Don't Have to Be Anywhere

Retirees don't have to get up early or report anywhere at a specific time. You're free to linger over a second cup of coffee and take your time running errands. But you may find that you want to make an effort to get out of the house and be with other people. "There are three needs that a job provides to most people: structure, purpose and sense of community," says Ernie Zelinski, a life coach and author of "How to Retire Happy, Wild, and Free: Retirement Wisdom That You Won't Get from Your Financial Advisor." "Retirees have to put those three things back in their life."
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